COMPANY INCOME TAXATION

Dominion, Volume 14, Issue 300, 13 September 1921, Page 6

COMPANY INCOME TAXATION

REPLY TO SIR FRANCIS BELL BY CHAMBER OF COMMERCE “ UNSYMPATHETIC ATTITUDE ” The much-discussed' question of company taxation was before the Wellington Chamber of Commerce again yesterday. The president (Mr. J. T. Martin) challenged statements made on the subject by the Acting-Prime Minister (Sir Francis Bell), and reiterated tho demand for a revision of the incidence of taxation. "Sir Francis Bell when in Auckland recently evidently thought it expedient to make certain statements in connection with company income taxation which cannot be allowed to go forth' unchallenged,’’ said Mr. Martih. The ActingPrime’Minister stated that it would be quite impossible to collect the tax from tho individual shareholders instead of the company. Why impossible? It is done in Great Britain and Australia, and if possible there, why impossible here? The Acting-Prime Minister states in justification of the present method that it is easier and enables a better estimate of the probable revenue to be made. It is not a question of what is the easiest, but what is the fairest method. New .Zealand has adopted a system of taxing incomes on a graduated 'scale—the larger the income the higher the rate of taxation—the maximum being approximately Bs. 9d. in the \£. It is admitted that the justification for a graduated system of is that a taxpayer contributes according to his ability; in, other words, the larger the income of the individual the higher the rate of taxation. The root of the trouble in income taxation in New Zealand is the application of the graduated or pro- . gressive system of taxation to tho incomes of companies. Companies .are treated' as individual taxpayers, and graduated tax Is Imposed accordingly, with the result that through companies small investors pay taxation at tho same rate as large investors. THE SOURCE OF COMPLAINT. "Sir Francis Bell states that it would bo unfair to shareholders to charge them instead of tho companies. A company belongs to its shareholders; tho size of the shareholders’ dividend is regulated by the profits that tho company has available for distribution, and the actual unfairness lies in perpetuating the present system of charging the individual shareholder at tho maximum rate of Bs. 9d. in the .£l, instead of the comparatively small rate which he would pay on rendering an account of his personal income. Sir Francis Bell states that no companies have reduced their dividend by reason of tho tax. I can scarcely credit this statement to the Act-ing-Prime Minister, as he surely knows or ought to know that not only have many companies reduced their dividends, but several are paying none at all, and in the case of many of those that are paying reduced dividends they are paying them out of reserves, and it must be patent to everyone that this expedient lias definite limitations. "The Acting-Prime Minister states that tho agitation for a change in incidence of taxation is not from the large investor, not from tho small investor, but from the managers of companies, who are desirous of showing larger annual not returns. I agree it is not from the large investor who is scoring at the expense of the small investor, but it is at the instance of the small investor who is paying the same maximum rate of Bs. 9d. per XI income tax on his small investment as the wealthy man is paying on his large investment, and if Sir Francis Bell does ' not hear tho insistent clamourings of these sirtall shareholdeis as evinced at shareholders’ meetings of companies, at farmers’ union meetings, at chamber Of commerce and industrial association meetings throughout this country, then all I can say is it is a clear case of turning a deaf ear. The Government must look to it that it does not by continuance of its present attitude to companies dry up this source of revpnue and accentuate tho difficulties that are fast gathering; around this country. „ > • .. "UNSYMPATHETIC ATTITUDE.”

"It is reasonable to assume fiiat Sir Francis Bell’s statements made’ in his capacity as Acting-Minister of Finance are the views of his financial advisers, and of his colleagues in the Cabinet, and, if such is the case, it reveals tho unsympathetic attitude of the Government towards one of the most important subjects that must engage the’.attention of Parliament this session, end emphasises the necessity for what the farmers’ unions, mercantile and manufacturing concerns, and shareholders in all classes of business enterprise have been clamouring for, viz., a revision of the whole incidence of taxation, such revision to be done by a competent boarfl, comprising (Government experts and four or five of the ablest financial business men in this country. Out Government has never shown much disposition to bo guided by business experts outside Parliament, and in this respect shows up unfavourably with England and other countries. I would go further and rocommend that not only the income tax, but tho whole financial position of this country be carefully overhauled by the suggested board. “I propose that the secretary communicate the opinion of this chamber to the newlv appointed Minister of Finance —the Hon. W. Downie Stewart—and that the matter be remitted to tlie annual meeting of the Associated Chambers of Commerce which will shortly be held m Christchurch/*

"WILL NOT FACE THE POSITION.” Mr. M. A- Carr endorsed what the president had said. It was difficult, lie stated, to understand why income taxation on companies should be stiffer here than in any other part of the Empire. He believed the Government recognised that there were anomalies in the taxation of this country, but the trouble was that it would not face tie rxisition. Cliambera of commerce had been calling for years for a commission of investigation tq consider the incidence of taxation. If they went to the Government and made representations regarding anomalies, they were immediately asked what substitute they had to offer. It wae not fair that the onus of finding a substitute should be cast upon them. It was not sufficient, moreover, to say that tho present way of collecting taxes was an easy one. One. class of taxpayer had a, suspicion that tho oilier was not paying its proper share, because, each class knew that anomalies existed. Bat tho Government would net face tho. position and appoint a body to go into tho matter thoroughly. He believed that if the present system of company taxation was carried on, many companies would have to go out of business The Government would in. that case have "killed the goose that laid the golden egg,” and would have crippled enterprise and industry. THREE QUESTIONS. Mr. C. H. Young, in the course of some remarks on the same subject, said that until lately the Hoard of Trade had been controlling tho profits of companies while the Government was taxing them. Ho believed that if the board had made it its business to see that w.ch company set aside proper reserves and mucic adequate provision for the future, it would have been doing better for the country. He wished the Government to answer the three following questions: "(1) Under the pretent sys-.

tern of company taxation is a company shareholder likely to favour tax-free dividends when such method is gradually impairing the business prqducing such dividends? (2) Is it right for on unfair method of taxation to prevail because a fpir and just method is difficult in collection? (3) Is the present system of company taxation strengthening or otherwise the secondary industries of the country; if otherwise, is it not defeating the Government's purpose by impoverishing the source from which revenue is sought?” The matter was not further debated, the other members of tho council being obviously in symg>thy with the views expressed.